Extra Costs in Buying a House
Updated January 1, 1 . AmFam Team
You’re ready to buy a new home and it’s time to get your financial ducks in a row. A down payment and mortgage are a given — you may even know you’ll need proof of homeowners insurance up front. But are you prepared for the additional costs associated with buying a home that can show up when buying a house?
In most cases, you’ll need to have cash on hand to cover the earnest money, down payment, taxes and all the various closing costs when the time comes to sign on the dotted line. Let’s take a closer look so you can avoid those out-of-pocket surprises on your way to becoming a homeowner.
Closing fee or escrow fee
This is paid to the title company for handling the home closing as a third party.
Title search fees
This search is done through legal records in your area to make sure there aren’t any unpaid liens on the property before you buy.
Title insurance
Sellers pay the majority of title insurance costs but there is a portion that protects the buyer and, fairly enough, that’s the buyer’s responsibility.
Recording fees
The transaction will need to be reported to your city and county. While the title company will handle that for you, they do charge a fee for this service.
Transfer title and deed
The paperwork required to transfer the title and the deed will be drawn up by the title company and will be explained at the closing. There is a fee for this service when you buy a house.
Taxes
The property taxes will be prorated so the buyer and seller will only pay for the portion of the year they’re in the home. This is all figured with your closing documentation and the associated costs are handled at this time.
Homeowners insurance
You will need to prove that you have homeowners insurance lined up before the purchase can go through. An important point to keep in mind is that the minimum requirement for your loan may not be enough insurance and could leave you unprotected should something happen. Check with your American Family Insurance agent (Opens in a new tab) to make sure you not only have enough insurance for the closing but enough to give you all the protection your new home deserves.
Realtor fees
If you use a realtor, they typically are paid a percentage of the sales price of the home. The going rate is somewhere between 6-7% and the amount may be split between buyer’s and seller’s realtors.
Attorney fees
An attorney is not always required for a real estate transaction and the fees may be paid at a different time, depending on the situation. But if one is involved, don’t forget to plan for this charge when purchasing a home.
Courier fees
You may get a break here and not have courier fees during the home buying process, but there can be a last minute rush for paperwork and a courier may be required to speed things along.
Survey fees
A survey of the property may come into play during the home purchase negotiations. Typically the financial responsibility for the survey can be negotiated between the buyer and seller.
Home warranty
The home warranty is another piece that isn’t necessary. But sometimes buyers want a warranty included and sometimes the seller wants to put one in the deal to make it more attractive. No matter who asked for it, if it’s in the contract then the seller will pay for it.
Homeowners association fees
If there is a homeowners association, the HOA dues are typically prorated in much the same way the taxes on a property are. In some situations, there may be additional transfer fees associated with the HOA.
How to Budget for Costs of Buying a Home
In addition to understanding your annual net income, or how much you make after taxes, there’s a lot you can do to budget for buying a new house:
- Reserve part of your tax refund for the home’s down payment
- Pay down debt and high-interest credit cards now
- Trim your expenses — limit takeout and entertainment costs
- Build a realistic budget and stick to it
- Put a few hundred dollars aside each month for closing costs
What Else Do I Need to Know About Buying a House?
Remember that some of the home buying fees you’ll encounter when buying a home can be negotiated. Of note: you may be able to negotiate with whomever is charging a given fee. And in other situations, the buyer and lender may work out a deal on who has to pay certain closing costs. It’s all negotiable.
Many of the closing costs fall on the home buyer but sellers should be prepared for the realtor’s fees and all other negotiated expenses.
Closing costs vary and can be further impacted by the state you’re purchasing a house in and the lender you choose. A rule of thumb that may help you anticipate these expenses is that they typically range between 2% and 10% of the home sale price.
Get the Right Homeowners Coverage for Your New Home
If you have any questions about homeowners insurance and how to fully protect your new home, connect with an American Family Insurance agent (Opens in a new tab) — they’re happy to help you protect your new investment. And congrats on taking big steps toward homeownership!
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.
You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
